2014 q2-net-lease-research-report

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Q2 2014 net lease report

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2014 q2-net-lease-research-report

  1. 1. www.bouldergroup.com THE NET LEASE MARKET REPORT Q2 2014 Sector Q1 2014 Q2 2014 Basis Point (Previous) (Current) Change Retail 6.75% 6.50% -25 Office 7.64% 7.77% +13 Industrial 8.00% 7.97% -3 Sector Q1 2014 Q2 2014 Percent (Previous) (Current) Change Retail 2,609 3,058 +17.2% Office 288 304 +5.5% Industrial 177 210 +18.6% MARKET OVERVIEW Cap rates in the second quarter of 2014 for the single tenant net leased retail sector reached a new historic low rate of 6.50%. Cap rates for the industrial sector compressed minimally by three basis points to 7.97% while cap rates in the office sector rose 13 basis points to 7.77% during the quarter. The retail sector experienced the third straight quarter of historically low cap rates as a result of increased demand and the continually growing investor pool seeking the stable yield of the asset class. The office sector experienced its second consecutive quarter of rising cap rates due to the residual concern of ongoing vacancy challenges facing the suburban and secondary office markets. Retail net lease assets remain the most desired property type in the net lease market as evidenced by the cap rate premium of 127 and 147 basis points over the office and industrial sectors respectively. The spread between retail and office/industrial properties is the largest spread in the past fifteen years. Investors favor retail assets as they typically have longer initial lease terms and investors have a familiarity with the tenants and a preference for the typical passive nature of the leases. Despite the 16% increase in supply of net lease offerings in the second quarter, quality offerings with long term leases to investment grade rated tenants remain in limited supply. The majority of buyers acquiring low cap rate properties, including 1031 exchange investors, are seeking new construction assets with investment grade tenants. For example newly constructed Walgreens, Chase Bank and 7-Eleven properties experienced cap rate compression of 10, 25 and 25 basis points respectively. Non-institutional investor demand throughout the net lease market will grow as the flight to the stable yields generated by this asset class should continue. As the individual investor demand continues to accelerate, some of the perennial institutional net lease buyers are findingitdifficulttocompetewiththeirnon-institutionalcounterparts. For instance, a leading global net lease REIT W.P. Carey has decided that the valuations of net lease assets are no longer attractive and is accordingly moving to other sectors. The expectation is for some other institutions to follow as valuations are well above historic levels and competition among private investors continues to drive prices. Sector Q1 2014 Q2 2014 Basis Point (Previous) (Current) Change Retail 23 18 -5 Office 59 51 -8 Industrial 33 35 +2 NATIONAL ASKING CAP RATES NUMBER OF PROPERTIES ON THE MARKET MEDIAN NATIONAL ASKING VS. CLOSED CAP RATE SPREAD
  2. 2. www.bouldergroup.com THE NET LEASE MARKET REPORT Q2 2014 SELECTED SINGLE TENANT SALES COMPARABLES Sale Date Sector Tenant City State Price Price Per SF Cap Rate Lease Term Remaining Jun-14 Retail CVS (Ground Lease) Tyson Corner VA $24,700,000 N/A 4.97% 25 Apr-14 Retail Wal-Mart Mobile AL $18,400,000 $92 5.85% 15 Apr-14 Retail Whole Foods Park Ridge IL $16,600,000 $434 5.13% 20 May-14 Industrial Kehe Foods Elkton FL $14,500,000 $58 8.91% 7 Jun-14 Retail Kohl's (Ground Lease) Palm Coast FL $13,675,000 $153 6.20% 16 May-14 Retail Walgreens Evergreen Park IL $10,833,333 $730 5.40% 20 May-14 Industrial Smart Warehousing Houston TX $8,590,000 $56 8.97% 8 Apr-14 Retail Trader Joe's Tampa FL $8,200,000 $792 5.67% 10 Mar-14 Office Department of Economic Security Yuma AZ $7,600,000 $190 9.00% 6 Apr-14 Retail Home Depot (Ground Lease) Carol Stream IL $7,200,000 N/A 5.95% 10 Jun-14 Retail Walgreens Lakemoor IL $6,725,000 $453 5.69% 25 May-14 Retail CVS Bessemer AL $5,879,083 $540 6.55% 10 May-14 Retail Bank of America (Ground Lease) Mount Airy MD $5,210,000 N/A 5.91% 14 NET LEASED CAP RATE TRENDS Retail Office Industrial 6.75% 6.25% 7.25% 7.75% 8.25% 8.75% Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013
  3. 3. www.bouldergroup.com THE NET LEASE MARKET REPORT Q2 2014 Tenant 2010-2014 2005-2009 2000-2004 Pre 2000 Walgreens 5.40% 5.60% 5.95% 7.25% CVS 5.50% 5.70% 6.18% 7.30% Rite Aid N/A 7.00% 7.70% 8.25% Advance Auto Parts 6.00% 6.41% 7.78% 8.00% AutoZone 5.50% 6.10% 7.00% 8.00% O'Reilly Auto Parts 5.75% 6.23% 6.60% 7.00% Dollar General 6.50% 7.40% 8.00% 9.00% Family Dollar 7.25% 7.63% 8.29% 9.50% McDonald's (GL) 4.00% 4.33% 4.75% 5.00% FedEx 6.50% 7.25% 8.25% 9.00% GSA 7.00% 7.75% 8.00% 8.60% Chase (GL) 4.25% 4.70% 5.00% N/A Bank of America (GL) 4.50% 5.00% 5.75% 5.90% PNC (GL) 4.40% 5.00% 5.40% N/A Wells Fargo (GL) 4.65% 4.75% 5.25% 5.60% 7-Eleven 5.25% 5.50% 6.00% 6.47% DaVita 6.60% 6.90% 7.25% 8.00% Fresenius 6.65% 6.85% 7.40% 8.00% FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com CONTRIBUTORS Randy Blankstein | President randy@bouldergroup.com Jimmy Goodman | Partner jimmy@bouldergroup.com Zach Wright | Research Analyst zach@bouldergroup.com © 2014. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express written consent of The Boulder Group. MEDIAN ASKING CAP RATES BY YEAR BUILT

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